Thursday, May 21, 2009

Trucking firm’s parent in trouble

New Penn Motor Express’ parent company is in dire financial straits, leaving the future of the South Lebanon Township trucking firm in doubt.
Late last week, Kansas-based YRC Worldwide Inc. said it will ask for $1 billion in federal bailout funds.

Two analysts don’t believe the nation’s largest publicly traded trucking company can survive.

“We have a difficult time seeing how the math works here to restore the company to profitability,” David Ross and John Larkin wrote in a Stifel Nicolaus research report. “It has already had its employees take a 10 percent wage cut. Plus, we do not see industry volumes rebounding this year and industry pricing remains very competitive.”

Ross told The Associated Press on Friday that the chance YRC will get bailout money is “very slim.”

“TARP (Troubled Asset Relief Program) was made for financial institutions, not to bail out a trucking company,” Ross told AP. “If YRC (received a bailout) that would just open up the floodgates for other struggling companies to ask for money, too.”

New Penn employs more than 2,000 people and operates a fleet of more than 750 tractors and 1,700 trailers. It is “widely regarded as one of the most efficiently operated carriers in the industry,” according to a YRC statement issued Tuesday in response to questions from the Lebanon Daily News.

New Penn has a network of 23 service centers in the northeastern

U.S., Quebec and Puerto Rico.
YRC had $8.9 billion in revenue in 2008. It employs about 49,000 people. Included among its operating companies are Yellow Transportation and Roadway Express, which are being integrated, New Penn Motor Express, USF Reddaway, USF Holland, USF Glen Moore and YRC Logistics.

On May 11, YRC reported a $257 million quarterly loss, compared to a loss of $46 million in the first quarter of 2008. YRC booked $164 million in charges for the quarter related to integrating its Yellow and Roadway divisions and laid off more than 3,000 workers.

On Friday, YRC announced it had reached an agreement with its banking group that will enable it to stay within the terms of its debt.

While the amendment with its lenders will help, the company is still staring at about $2 billion in pension obligations from a multi-employer plan, the Wall Street Journal reported. Bill Zollars, chief executive officer for YRC, said those obligations are unfair because YRC must pay for employees who never worked for the company.

Ross disagreed that seeking TARP money to solve the pension problem “is the way to go about it.”

Another analyst, Jon Langenfeld of Robert W. Baird & Co., wrote in a research note that the TARP fund application could backfire.

“Despite the fact that the union pension is not relevant to YRC’s near-term viability, shippers have already misinterpreted this move as an act of desperation, which could make share recovery more challenging,” wrote Langenfeld, who kept a “neutral” rating on the YRC stock.

YRC’s survival is dependent on “how much rope the banks want to give (YRC),” Ross told AP.

Stifel Nicolaus is maintaining a “hold” rating on YRC stock, with a “strong negative bias.”

In a recent note to clients, Ross said YRC continues to lose business to competitors and that YRC’s volumes in April were down 35 to 40 percent compared with a a year earlier.

YRC’s stock price has been hammered, closing at $3.18 on Tuesday. In mid-July, the stock price stood at $22.52.

On Friday, Zollars said that “volumes that were temporarily diverted have begun to return,” but added, “it has not been at the level and speed that we initially expected.”

YRC’s statement issued Tuesday said the firm is “making significant progress in strengthening our competitive and financial position. With our unrivaled networks, we are well-positioned to continue providing service that is simply reliable. On the financial side of our business, we are confident that we are taking the right steps by actively managing cash flow and engaging in constructive discussions with our lenders so that (we) can continue to meet our obligations and serve our customers. The most recent example is our bank amendment announced on Friday.”

Wednesday, May 20, 2009

ABF Freight System competitor seeks federal bailout funds

A request for federal bailout funds from a national trucking company is unlikely to obtain a favorable response, but it does indicate the potential impact of the precedent set by federal bailouts of the financial and auto sectors.

YRC Worldwide, the nation’s largest trucking company and a primary competitor in the less-than-truckload sector with Fort Smith-based ABF Freight System, has requested $1 billion in federal bailout money (Troubled Asset Relief Program, or TARP funds) to help cover an estimated $2 billion pension obligation the company will owe in the next two years.

YRC CEO Bill Zollars said a portion of the pension cost is unfair because the multi-employer pension program pays the costs of retirees who never worked for YRC. ABF Freight System also contributes to the multi-employer pension fund and, like YRC, is supporting retirement costs for those who never worked for ABF.

“For our union employees throughout the country, ABF participates in, and contributes to, many of the same multi-employer pension funds that YRCW does. We are in a much better financial position than they are as we have minimal debt and our balance of cash and short-term investments was $209 million as of April 15th,” David Humphrey, ABF spokesman noted in an e-mail interview with The City Wire. “However, we understand the issues they are raising regarding the unfairness of contributing companies like YRCW and ABF having to fund the benefits of retirees who never worked for us whose companies have gone out of business. These efforts by YRCW should help highlight the unfairness of this situation.”

Chad Brand, a trucking sector watcher at Seeking Alpha, was critical of Zollars’ request.

“Awfully presumptuous of him, don’t you think, applying as a trucking company without any indication Treasury would ever widen TARP to include any U.S. corporation? I would be shocked if this were approved, and if somehow it is, TARP would be completely out of control,” Brand noted in this post [1].

However, YRC employs more than 49,000, with many of them belonging to unions. It’s the union component, or, more specifically, propping up a pension plan for union members, that gives the YRC request a wisp of political cover.

John Taylor, senior vice president of John Taylor Financial-Sterne Agee and a member of the board of directors at Fort Smith-based Benefit Bank, said he can’t “fathom” how YRC will qualify for TARP funds. Taylor does not have investments in YRC or ABF.

“If they (YRC) do (get TARP funds) this is another classic example of a company (ABF) that did the right things (no debt, cash on the balance sheet, good expense control) being put at a competitive disadvantage by the government to a company that did all of the wrong things,” Taylor said. “ABF already has a disadvantage versus YRCW due to the wage concessions granted by the Teamsters to YRCW last year. Now a company that is debt free may have to compete with a competitor that is funded with taxpayer money. This is just like the GM versus Ford deal that is playing out except it is in the (trucking) industry. What is next? Maybe Krispy Kreme versus Dunkin’ Donut?”

'Best of the Best' ABF Service Centers Recognized With President's Quality Awards

ABF Freight System, Inc., service centers in Spokane and Tacoma, Wash.; Amarillo, Texas; and Albuquerque, N.M., are the 2009 winners of the prestigious President's Quality Award, which represents the highest honor the company can bestow upon its facilities. The award recognizes those most exemplifying the ABF Quality Process and considered the "Best of the Best".

This marks the third time the Amarillo facility has earned the recognition. It is the second consecutive year for Albuquerque and the first year for both Spokane and Tacoma.

ABF service centers annually undergo extensive evaluations, including a nomination process, a quality awareness survey, an on-site validation audit, and scrutiny by the ABF Quality Implementation Committee. The comprehensive process gauges resource management, damage/loss prevention, customer satisfaction, and other key performance indicators for the previous year. Finalists are reviewed by ABF President and Chief Operating Officer Wes Kemp, who makes the final selections.

"We believe our customers deserve error-free service," said Mr. Kemp. "The personalized customer care ABF provides comes from the training, experience, and responsiveness of our local service center personnel. These employees have demonstrated what can be achieved when the principles of the ABF Quality Process are put into practice. Our company has prospered because of our dedication to serving internal and external customers in a helpful, efficient, innovative, and error-free manner. In this context, these four facilities have earned the distinction and I'm looking forward to my visit with each one in celebration of their achievement."

Mr. Kemp is scheduled to present the awards in Amarillo and Albuquerque on May 26, 2009, and in Tacoma and Spokane on May 27, 2009. Each facility is presented with a plaque that resides permanently at their location and a Quality Cup that resides only as long as a facility maintains the distinction. Each ceremony is attended by the ABF Quality Implementation Committee, local employees, and special guests.

Tuesday, May 19, 2009

Davidson: ABF Ready for Freight

LTL industry need big volume boost for carriers to profit, CEO says

The trucking industry will have to see a significant freight volume increase before beleaguered carriers return to profitability, a leading trucking executive says.

“It’s going to take about a 10 to 15 percent increase in volume to turn the industry profitable,” Arkansas Best President and CEO Robert A. Davidson said May 19 at the Wolfe Reasearch Global Transportation Conference in New York.

The company’s main subsidiary, $1.8 billion LTL carrier ABF Freight System, reported a net loss of $18.2 million in the first quarter, when tonnage per day decreased 15.7 percent.

ABF is throttling back in the recession. It eliminated 625 positions in the first quarter, a 23 percent employee reduction since the fourth quarter of 2006, when its business began to decline. The cutbacks mean the trucker will be about 20 percent smaller than it was only three years ago.
Davidson said cutbacks in personnel and equipment wouldn’t affect the carrier’s ability to handle freight. “We can absorb more business like rain on a desert floor,” he said.